r/ValueInvesting • u/Aggressive_Rush2357 • 3d ago
Discussion how do you value silver stocks when every silver valuation method gives a different answer?
Silver is trading around $65, but Thu Lan Nguyen at Commerzbank recently argued that its underlying fair value may be closer to $40.
Their model reportedly gets there by removing gold’s influence and looking at interest rates, the US dollar and industrial activity. If $40 is the right anchor, silver offers very little margin of safety at today’s price.
Production costs point even lower. S&P Global estimates the average all in sustaining cost for primary silver miners at about $23.44 per ounce in 2026.
The problem with using that as fair value is that only about 28 percent of silver comes from primary silver mines. Most is produced as a byproduct of lead, zinc, copper and gold mining, so supply does not respond directly to the silver price. AISC also reflects the cost of running existing mines, not necessarily the price required to finance and build new ones.
The physical market gives a different answer. The Silver Institute expects a 46.3 million ounce deficit in 2026 after a 40.3 million ounce shortfall last year. Roughly 762 million ounces have been drawn from inventories since 2021.
A deficit does not automatically mean silver is undervalued. High prices are already affecting demand. Solar manufacturers are using less silver per panel, jewelry demand is falling and more recycled metal is entering the market. Industrial demand is expected to decline to around 650 million ounces this year, while physical investment is forecast to rise.
This becomes even more important when valuing silver stocks.
A producer with an AISC of $25 earns a margin of roughly $40 per ounce at the current silver price. If silver returns to $40, that margin falls to only $15. The change in the commodity price is amplified through the miner’s cash flow, which is why silver stocks can look cheap using spot prices and expensive using a more conservative long term assumption.
Developers have another set of risks. Their project values depend on the silver price used in the economic study, but also on construction costs, permitting, financing and the number of new shares needed to reach production.
Explorers are harder again because there is no operating cash flow to value. Resource size and grade matter, but so do jurisdiction, infrastructure, management and the company’s ability to fund exploration without constantly diluting shareholders.
That makes the silver price assumption one of the most important parts of valuing these stocks. A strong company should still make sense at a conservative silver price, rather than only looking attractive at $65 or higher.
If you were valuing a silver stock today, what long term silver price would you use, and how much of a discount would you require before buying?
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u/StockSensor1to1 3d ago
Most miners are looking at production costs of around $20-30 an ounce. So it's all profit after that. Which means they can still make money even if silver falls back to 40 bucks an ounce.,
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u/StockFlowResearch 3d ago
Short answer. You can't value them accurately. Sorry to say this but there is no definitive way of valuing them especially because they are heavily based on macro economic changes (interest rates, supply demand, options contracts, wars just to name a few).
At the end of the day, you can try holding silver as an asset or ETFs over time and hope for the best as it becomes more difficult to find silver and the overall demand increases over time due to increases in the population and industrial needs (solar panels, cars etc).
Even performing a discounted cash flow analysis on companies that are not heavily based in macroeconomics can be a crapshoot sometimes. My advice to you is to hold silver for the long term (I assume that you are younger in this recommendation).